UnitedHealth ( UNH) is strutting its stuff. The giant health insurer again posted record quarterly results that topped even Wall Street's high expectations. With gains across every business segment, third-quarter profits came in at 64 cents a share, up 23% from a year ago, to beat the consensus estimate by a penny. UnitedHealth's performance, which has been strong for years, sets the stage for expectations about the managed care group as a whole. The company's third-quarter revenue climbed 15% to more than $11.3 billion, roughly in line with analyst forecasts, while net income soared 21% to 842 million. Cash flow jumped an even higher 25% to $1.2 billion. Nearly every other metric -- ranging from operating margins to operating costs to the company's medical cost ratio -- showed improvement as well. Given its solid third-quarter results, UnitedHealth issued full-year earnings guidance of $2.48 a share, a penny ahead of Wall Street expectations. In addition, the company promised to grow earnings by at least 15% to $2.85 next year. The latter news could prove disappointing, however, with analysts looking for guidance of $2.93 instead. Based on his earnings preview this week, Prudential analyst David Shove was hoping for a lot. "We expect UnitedHealth Group to report strong 3Q05 earnings with slight upside to consensus," wrote Shove Wednesday, who has long maintained an overweight rating on the stock. And "we foresee UnitedHealth Group could aggressively raise its 2006 earnings expectations from its current 15% to the mid-25% range ... We believe UnitedHealth Group will sketch a rosy, robust earnings outlook, which will allay investor concerns over the managed care sector's earnings prospects." Shove pointed to a number of opportunities, especially those created by recent acquisitions and expanded Medicare coverage, in explaining his bullish view.
Still, investors seemed nervous on Thursday. They pushed the stock down 1.4% to $54.26 over concerns that UnitedHealth might fail to clear the high bar it always sets.
Looking ahead, Boorady has forecast significant opportunities in both Medicare and consumer-driven health plans as well. Rex, too, has voiced excitement about the company's Medicare business in particular. "UnitedHealth Group's continued broad push into the senior market ... certainly provides an alternative growth avenue, offsetting what could likely be slower traditional commercial insured revenue growth for much of the industry," wrote Rex, who has an outperform rating on the stock. "To the extent that investors care about a top-line growth story, and for that matter bottom-line ... at least for the next couple of years, Medicare could be the single most important contributor." For UnitedHealth, Rex estimated, senior-related business will generate nearly 30% of next year's pro forma revenue -- and that excludes the big boost expected from new Medicare Part D coverage.